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Karnataka Class 12 Commerce Economics The Concept Of An Economy Notes

Karnataka Class 12 Commerce Economics The Concept Of An Economy : Karnatak University (Kannada: ಕರ್ನಾಟಕ ವಿಶ್ವವಿದ್ಯಾಲಯ) is a state university located in the city of Dharwad in the state of Karnataka in India. It was established in October 1949, and officially inaugurated in March 1950. The campus spans 750 acres (3 km²). D. C. Pavate was the first official vice-chancellor from 1954 to 1967. The rapid development of the institution is credited to him.

The university was recognized with the “Potential for Excellence” by the University Grants Commission. The university is the second oldest university in the state of Karnataka after the University of Mysore. The Karnatak university once used to serve most of the Karnataka region including Dharwad, Belagavi, Uttara Kannada, Bijapur, Gulbarga, Raichur, Bidar and Bellary. until the 1980s (Manipal Institute of Technology and the Kasturba Medical College of Manipal were affiliated with Karnatak University at Dharwad and all degrees were awarded by Karnatak University in between the years from 1953 to 1965)

Karnataka Class 12 Commerce Economics The Concept Of An Economy Notes

Karnataka Class 12 Commerce Economics The Concept Of An Economy : Economics is a social science which studies the production & consumption of goods and the transfer of wealth to produce & obtain those goods. The term ‘economics’ comes from the Ancient Greek ‘oikos’ which means ‘house’ and ‘nomos’ which means ‘custom’ or ‘law’. The subject was earlier known as ‘Political Economy’. However, in the late 19th century, the economists suggested ‘economics’ as a shorter term. Economics explains how people interact within markets to fulfill their desires/wants/goals. Also, if one properly studies economics, he/she can comprehend why certain people and/or government/s behave in particular ways

Definition of Economics:

According to Dr. Alfred Marshall, “Economics is the study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected and social action which is most closely connected with the attainment and use of the material requests of wellbeing.” There are two main types of economics viz. Macro Economics and Micro Economics. Micro Economics: Study of economic behaviour of an individual unit. Macro Economics: Study of economic behaviour of the economy, as a whole. The terms ‘Micro Economics’ and ‘Macro Economics’ were coined and eventually used by Ragnar Frisch of Oslo University in 1933.

Karnataka Class 12 Commerce Economics The Concept Of An Economy Notes

Karnataka Class 12 Commerce Economics The Concept Of An Economy :The earliest concept of development was interpreted in terms of growth of output over time and later in terms of per capita output. The terms growth and development were used interchangeably.

During 1950 and 1960s many developing countries realized their economic growth targets but standard of living of the people did not change. In fact existence of mass poverty, illiteracy and ill health continued to plague the developing countries. This implied that there was something wrong with this definition of economic development. Most of the economists clamored for dethronement of GNP and define development in terms of removal of poverty, illiteracy, disease and changes in the composition of input and output, increase in per capita output of material goods. Increase in output of goods and services and in income does not imply an improvement in the standard of living of the people because GDP is a narrow indicator of economic development that does not include non-economic indicators such as leisure time, access to health, education, environment, freedom or social justice.

Economic development is thus a multivariate concept; hence there is no single satisfactory definition of it. Economic development is a process where low income national economies are transformed into modern industrial economies. It involves qualitative and quantitative improvements in a country’s economy. Political and social transformations are also included in the concept of economic development in addition to economic changes.

Literally, economic development can be defined as “passage from lower to higher stage which implies change”. Charles P. Kindleberger and Bruce Herrick (1958) point out: “Economic development is generally defined to include improvements in material welfare especially for persons with the lowest incomes, the eradication of mass poverty with its correlates of illiteracy, disease and early death, changes in the composition of inputs and output that generally include shifts in the underlying structure of production away from agricultural towards industrial activities, the organization of the economy in such a way that productive employment is general among working age population rather than the situation of a privileged minority, and the correspondingly greater participation of broad based groups in making decision about the direction, economic and otherwise, in which they should move their welfare”

Kindleberger while making a distinction between economic growth and economic development argues that: “Economic development implies both more output and changes in the technical and institutional arrangement by which it is produced and distributed”. Economic development in the classical era meant: “an increase in the absolute size of annual production regardless of the size of the population, or an increase in the economy’s real income over a long period of time”.

Consequently in the words of Meier (1964), “economic development is a process whereby an economy’s real national income increases over a long period of time”. This definition fails to take into account the changes in the growth of population. If a rise in real income is accompanied by faster growth in population there will be no economic development but retardation. Thus, some economists define economic development in terms of an increase in per capita income. Drewnewski (1966) defines development in terms of economic and social welfare, “In the standard of living of people economic development is supportive and it involves increased per capita income and creation of new opportunities in education, healthcare, employment sectors. Development is of limited significance if it does not lead to economic welfare. Economic development implies increased per capita income and reduced income inequalities and satisfaction of the people as a whole”.

In 1970’s redistribution from growth became a common slogan. Dudley Seers (1972) raised the basic question about the meaning of development succinctly when he asserted questions about a country’s development, such as “what has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond this constitutes period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result development even if per capita income doubled”.

Karnataka Class 12 Commerce Economics The Concept Of An Economy Notes

Karnataka Class 12 Commerce Economics The Concept Of An Economy : Further, for understanding the meaning of development Goulet (1971) considers three core values as an important basis and guideline:

Concept Of An Economy

1. Life Sustenance: The ability to meet basic needs: There are some basic needs (food, shelter, etc.) that are essential for improvement in the quality of life. So the basic function of economic activity is to overcome people from misery arising from shortage of food, shelter.

2. Self-esteem: A second universal component of the good life is self-esteem. Self-esteem refers to self-respect and independence and for development of a country it is an essential condition. Developing countries need development for self-esteem to eliminate the feeling of dominance.

3. Freedom: A third universal value is the concept of freedom. Freedom here is understood as a fundamental sense of release from freedom, freedom from misery, institutions and dogmatic beliefs. It refers to freedom from three evils of want, ignorance and squalor.

Karnataka Class 12 Commerce Economics The Concept Of An Economy Notes

Karnataka Class 12 Commerce Economics The Concept Of An Economy : Mc Granahan (1972) introduces social factors as an important phenomenon in the process of economic development. According to McGranahan, “development theory is much preoccupied with the rate of social factors as inputs or prerequisites for economic growth. It is widely believed that neglect of these factors has been a reason for disappointing rate of economic growth. At the same time it is evident that there is no simple universal law that can be stated regarding the economic impact of education, health, housing and other social components”.

Economic development includes economic growth measured in terms of GDP and its distributional dimensions. In respect of this some economists include role of reducing poverty, provision of improving basic needs, goods and services and reduced inequalities in income distribution in the definition of economic development which can be achieved by increasing the rate of production and employment. Thus, the growth of productive employment is another dimension which is included in the definition of economic development.

In 1980 The World Bank outlined the challenges of development as economic growth, and joined the views of observers taking a broader perspective when in its 1991 World Development Report, it asserted: “The challenge of development is … to improve quality of life. Especially in the world’s poor countries, a better quality of life generally calls for higher incomes but it involves much more. It encompasses as ends in themselves better education, higher standard of health and nutrition, less poverty, a clearer environment, more equality of opportunity, greater individual freedom, and a richer cultural life”.